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Home » Accounting Tutorials » Accounting Fundamentals » Accounting Procedure

Accounting Procedure

What is Accounting Procedure?

The accounting procedure is defined as the process of standardized nature that performs a specific accounting function that are designed to incorporate better risk management policies so that these functions are completed in a more productive and efficient manner. The accounting department performs several functions such as perform billings for their customers, provide invoices to suppliers, perform bank reconciliation, and hence such tasks normally require comprehensive and streamlined procedures.

Characteristics of Accounting Procedure

Characteristics of Accounting Procedure

#1 – Collection of Financial Information

It begins with the collection of financial documents. The information collected may be logged and maintained through physical mode or electrical mode. The cash register tapes, incoming bills, receipts, records of salaries, travel receipts, and forms along with invoices are examples of financial documents.

#2 – Account Reconciliation and Verification

Once logged into the system, the accountants verify the financial information with the available evidence. Account reconciliation and internal as well as external reporting are performed as per the established accounting procedures. These procedures should be designed and constructed in such a manner that it records valid, objective, and accurate information. The procedures should be consistent and comparable.

Examples of Accounting Procedures

Example #1

The best example to describe the above point is that of inventory valuation. Once it is determined that inventories are to be recorded and valued using the First-in first-out inventory method, then it should not be changed to any alternative valuation method such as that to either the LIFO inventory method or weighted average method.

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Example #2

Another example could be of billing procedures wherein invoices are generally issued to the customers. This involves three broad tasks, namely information collection for invoices, creation of invoices, and issue them back to the customers. The people responsible for the billing process may review daily billing information and verify prices to process the order. Once review activity is complete, it may ask the system to print the invoices in a batch and wherein such printed invoices are then sent over to the billing address.

Example #3

The determination of payroll for the employees is another example. The payroll executive may collect the following information, such as timesheets wherein they may review and approve the timesheets to record the hours spent by the employees working towards the said task. For the tasks worked, the corresponding wage rate is applied, and this, in turn, is utilized to determine gross pay and the net pay after tax deductions.

Example #4

Calculation of depreciation for fixed assets is another example. Basis the reporting requirements on taxes or for accounting purposes, adoption of the MACRS depreciation or straight-line depreciation method can be looked upon to determine the depreciation expense of the asset.

Advantages

  • IT helps in the process of decision making as it provides a framework and also an effective division of work between accounting departments.
  • Different accounting procedures require different levels of specialization and skills to record the information into the accounting systems.
  • It helps in recording of information of financial nature and non-financial nature.
  • It ensures that the recorded information can be cross-verified. It helps in making financial statements of uniform in nature and which could be utilized for industry analysis.
  • The application of the right accounting procedures ensures efficiency and time-saving in terms of recording information into the system.
  • It ensures that the business records are maintained in chronological order.
  • It ensures that the business complies with all legal and regulatory compliance.

Disadvantages

  • The accounts maintained and formed as per accounting procedures can be easily manipulated if the processes are not revised as per the present applicable guidelines prescribed as per the accounting standards and legal compliance.
  • The information shared and prepared through adopted procedures may be biased due to human errors and judgments.
  • Non-compliance with accounting principles into the procedures may result in the incorrect recording of information.
  • It helps in the division of work among different departments. Still, it also results in the creation of unnecessary silos, which in turn produces difficulty in the reconciliation process of the financial information.

Conclusion

The accounting procedures are a set of tasks or process that helps accounting department to streamline and perform useful accounting functions. This ensures better management of information with increased transparency and robust reporting of facts. Correct and to the point procedures of accounting helps in the preparation of useful and accurate financial statements.

Recommended Articles

This has been a guide to what is Accounting Procedure. Here we discuss characteristics and examples of accounting procedures with advantages and disadvantages. You may learn more about accounting from the following articles –

  • Accounting Convention
  • Conservatism Principle of Accounting
  • Matching Principle of Accounting
  • Accounting System
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